Take a video tour of Alberta’s Industrial Heartland, located northeast of Edmonton.

The Heartland region is becoming the “knot in the bow” for Alberta’s rapidly expanding oilsands and natural gas liquids business — a hub for pipelines, a site for refining and extraction, as well as a logistics centre for manufacturing and transport.

“We see producers shipping here and then making a decision,” Neil Shelly, executive director of Alberta’s Industrial Heartland Association, said in a recent interview. “To get the best price, they have multiple options for sending their product out, or to one of the local facilities.”

The Edmonton region has always been a key oil-marketing centre, with three refineries and several major pipelines. But with the explosive growth in oilsands production from both Fort McMurray and Cold Lake deposits, the game has changed.

There’s now so much diluted bitumen being produced, with so much being sent to U.S. refineries, that Heartland — officially, 582 square kilometres of existing industrial sites and farmland that is zoned for heavy industry — is becoming a virtual switching yard that extends through Fort Saskatchewan as well as Lamont, Strathcona and Sturgeon counties.

Pipelines begin in the oilsands region and generally end at terminals in the Heartland and Edmonton regions, vast “tank farms” which then feed a variety of pipelines and crude-to-rail facilities. From here, the oil moves into another pipeline system, or on to local refineries. (Upgrading turns bitumen into synthetic crude, while refining kicks the process up a notch into value-added products such as diesel or gasoline.)

Natural gas liquids — valuable chemical feedstocks such as propane and ethane extracted from natural gas and oilsands off-gas — provide the basis for even more industrial development.

When companies locate near one another, they are able to use each other’s byproducts, creating a interdependent web — and the key to the region’s success, said Shelly.

Heartland is already home to 43 per cent of Canada’s basic chemical manufacturing — including petroleum refining and upgrading, ethylene and styrene production, natural gas fractionation and processing, fertilizer production and metal refining, plus other petrochemical and specialty products.

“And we could double production around here,” Shelly said. “We are excited because we see the potential.

“When I started here five years ago, there was the same potential with bitumen upgraders — people thought we were in line for six upgraders and $80 billion in investment.”

But the market changed, and new upgraders were instead built in the U.S. “Today we have the same potential as then, but it is with projects like the new bitumen refinery, the Sasol gas-to-liquids plant, the Williams PDH (propane dehydrogenation or propane-to-propylene) plant and the Pembina expansion,” he noted.

Perhaps the sweetest is the $6-billion first phase of the North West Redwater Partnership’s bitumen refinery, now under construction.

“When all three phases are in operation, we will be generating $10 billion a year in sales, and over its economic life this project will generate about $1 trillion in economic activity in Alberta,” said Ian MacGregor, founder and chairman of North West Upgrading, which formed a partnership with Canadian Natural Upgrading Limited (CNUL), a wholly owned subsidiary of Canadian Natural Resources Limited (CNRL).

Three-quarters of the feedstock supply comes from provincial royalty bitumen, with the rest from CNRL.

In a novel approach to getting more revenue from its oil, the province pays the partnership a fee for processing the bitumen collected from producers under the Bitumen Royalty in Kind (BRIK) program. (The Alberta government has access to 400,000 barrels per day of bitumen in lieu of receiving royalties.) The government is then able to earn much more by selling the diesel fuel produced by North West than by simply selling the raw bitumen into the market.

Every cost of getting the crude oil to market, including shipping and refining, is subtracted from total revenues from the sale of the refined oil products derived from that crude. The net figure produced is known as the netback price.

“If Phase 1 had been in operation last year, the province would have earned about $500 million more than it got by selling its raw bitumen,” MacGregor said “If the province could get that netback for all its royalty bitumen by 2020, it would earn an additional $4 billion.

“We can’t build all these plants by then, but it tells you the size of the prize if we keep after it.”

Photo: Ian MacGregor, founder and chairman of North West Upgrading, is bullish about the $6-billion first phase of the North West Redwater Partnership’s bitumen refinery now under construction in the Heartland region. Credit: Larry Wong, Edmonton Journal.

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With export pipeline constraints and a lack of shipping capacity to B.C., moving the plant’s diesel to Asian buyers through existing rail terminals will be a huge plus.

“We are not certain bitumen can be exported from the West Coast — it is contentious — but we know we can export diesel now, because it moves up and down the coast by tanker every day, and every community gets its diesel supplied by tanker.”

The best markets for Alberta’s new diesel — which will have the “lowest embedded CO2” or carbon dioxide in the world — will be India and China.

“And the U.S. Gulf Coast is already exporting one million barrels of diesel each day, much of it made with Alberta feedstock,” MacGregor said. “We may be able to go after that market, too.”

The low CO2 label on the fuel is due to Enhance Energy’s 240-km Alberta Carbon Trunk Line, which will move 3,500 tonnes per day of CO2 from North West and another 1,500 tonnes from the neighbouring Agrium fertilizer plant, to an old oilfield near Clive, in central Alberta.

That’s where it will be injected underground, boosting oil production by pushing the remaining oil in the field into production wells, in a process known as enhanced oil recovery. EOR is often employed in older, depleted fields that now produce very little.

The pipeline’s target date is 2016, when the North West plant opens.

Enhance president Susan Cole says Agrium and North West will send about 1.8 million tonnes per year into a pipeline that is designed to handle up to 15 million tonnes per year. So there is plenty of room for more firms to link into the line. This was the plan when the Alberta government agreed to spend $495 million over 10 years to support the carbon trunk line, which has a $1.2-billion budget for capital and operating costs for its first decade of service.

The Clive oilfield currently produces just 470 barrels of oil and gas per day, but using CO2 will bump that to about 10,000 in the initial phase of the project, said Cole.

“We can’t disclose details, but the rule of thumb for EOR is one tonne of CO2 will produce two barrels,” she said. The Clive field has been producing light oil since the 1950s. It could produce 25 million barrels more over the next 20 years with EOR.

While bitumen upgrading and refining are a large part of the Heartland, gas is also big — both natural gas and its rich components.

The region’s second major project now underway is Pembina’s $1-billion-plus expansion of its natural gas liquids infrastructure — which includes the $415-million twinning of its Redwater facility, with space also being prepared for a potential third plant.

In the face of very low natural gas prices, producers have been targeting “liquids-rich” deposits which yield more pricey butanes and propanes. Splitting those products requires the service of a fractionator — a tower that uses heat and pressure to separate the components.

Photo: This aerial view shows the footprint of the North West Redwater Partnership’s bitumen refinery. Credit: Ryan Jackson, Edmonton Journal.

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Stuart Taylor, senior vice-president for natural gas facilities for Pembina, says the new plant is critical to the company. “One of the things we have learned is that in order for us to continue to build our facilities (natural gas pipelines and processing plants) upstream of Redwater, we need to have a place to put the product to be fractionated, and also have access to markets,” Taylor said.

“It is a big push for Pembina to continue to grow our gas service business ... and regarding the third fractionator, I am an optimist at heart.”

He said the business case for the new fractionator is solid — contracts for 97 per cent of its operating capacity have been signed.

When it opens in late 2015, the ethane-plus output from both fractionators will be 146,000 barrels per day. And with the exception of propane, the other streams — ethane, methane and butane — will be sold to Alberta companies.

Pembina already has a deal with NOVA Chemicals in Joffre to store up to 500,000 barrels of ethane in a new cavern in its existing underground storage site. Sharing the Pembina site is the Williams Energy fractionator. It has a pipeline to Suncor’s upgrader and has become the world’s only processor of oilsands off-gas, from which it extracts products such as propane, butane and condensate.

The facility has just been expanded, and earlier this year Williams announced plans to build a $900-million propane dehydrogenation facility which would take all the propane from its expanded Redwater fractionator facility. The product would be polymer-grade propylene, a key petrochemical used to make polypropylene for packaging, textiles, plastic parts and even polymer banknotes and propylene glycol, which is used in aircraft de-icers.

The propane-to-propylene plant could entice more companies into the Heartland, said Shelly.

“Williams has been talking to companies and they have a number of suitors who would buy the material and set up plants to make plastics, fibres and petrochemicals,” he said.

Processing more natural gas and bitumen within Alberta could increase the province’s gross domestic product by $6.2 billion a year, create 19,000 new jobs that pay $1.8 billion a year in salaries, and increase provincial revenue by $630 million a year.

That’s the tally from an economic impact study commissioned by Alberta’s Industrial Heartland Association this year and conducted by Ron Schlenker, an economist with the University of Calgary and the head of Schlenker Consulting Ltd.

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